Toughen up referral fee ban?

The government has pledged to revisit the terms of the personal injury referral fee ban if it looks as though alternative business structures (ABSs) and other arrangements are being used to get around it.

Conservative peer Lord Hodgson of Astley Abbotts raised the issue yesterday in the House of Lords, asking the government whether it proposed to take action to prevent the re-emergence of referral fees through the use of ABSs.

Claiming that the ban had already led to a 5% reduction in motor insurance costs – “with a planned reduction of as much as 15%” – Lord Hodgson said ABSs may “undermine all the good work so far”.

He pointed to the joint venture ABS between Cardiff law firm NewLaw Solicitors and Ageas – though he named Ageas’s previous name, Fortis, and its Tesco Underwriting business.

“Will my noble friend accept that it is not doing this for its health? Will he have a word with the Legal Services Board and the Solicitors Regulation Authority (SRA)… to see what their view is of new firms being established, apparently with the sole purpose of frustrating the will of Parliament?”

Justice minister Lord McNally said ABSs “allow for increased competition and the provision of more cutting-edge services, helping to lower costs while maintaining high standards”. But, he added, “if they are established with the sole purpose of frustrating the will of Parliament, they will break the law. I will certainly take up my noble friend’s suggestion and talk to the Legal Services Board and the Solicitors Regulation Authority.

“We have had experience before of putting a law in place and some clever person trying to get around it, but we will take a close look and if they are trying to get around it, we will stop it.”

Liberal Democrat peer Lord Marks of Henley-on-Thames QC also expressed his concern, calling on Mr McNally to “make it clear to the SRA and the profession that if ABSs clearly undermine the referral fee ban, further legislation is an option”.

The minister replied: “More than that, LASPO already allows us to extend the powers, if necessary. We therefore want to see the evidence that is emerging. If these groupings of separate facilities and companies seem to be using means to bypass the ban on referral fees, we will revisit our powers under LASPO. I understand the concern of the House on this matter.”

Solicitor and Labour justice spokesman Lord Beecham asked whether new schemes involving the indirect transfer of information – where the client is given the name of the solicitor to contact, rather than the referrer giving the solicitor the client’s name – are outside the legislation.

“I do not think so,” said Lord McNally. “However, a lot of examples have sensibly been raised in the House today, some of them hearsay and some from direct experience, which suggest that what we intended to do in LASPO may not exactly be hitting the target, or that, as a result of organisational devices used by companies, the target has been moved…

“If necessary, we will look at the powers that we were given under LASPO to make sure that we do what the House intended, which was to stop the practice of referral fees, particularly in the area of motor insurance.

Asked by Bar Standards Board chairman Baroness Deech about banning referral fees in all areas of practice, the minister said “we will consult the regulators and consumer groups to see whether our experience of the ban should be extended to other areas”.

Helen Molyneux, chief executive of NewLaw, told Legal Futures that the joint ventures were not about getting around the ban, but helping insurers deliver “proper legal services to their customers”. As well as personal injury, the joint ventures also offer wills, probate and employment advice, and she said the firm was investigating family law too. It helped offering services through brands because people trust them, Ms Molyneux added.

NewLaw currently has joint ventures with Ageas, fleet management company FMG and specialist motorcycle broker H&R Insurance. Ms Molyneux said a further joint venture ABS application is with the SRA, while two more are in the works.

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